On December 17, 2008, Dianne Edwards (“Edwards”) was choked to death. Edwards’ Will, which was admitted to probate on October 5, 2009, named her daughter, Deanna Palladino (“Deanna”), as the sole beneficiary of Edwards’ estate, which consisted mainly of Edwards’ home. Edwards’ son-in-law, Brandon Palladino (“Palladino”), was charged with murder. On October 12, 2010, Palladino plead guilty and was sentenced to 25 years in prison.
Deanna died on February 9, 2010. The cause of death was reportedly an accidental drug overdose. Deanna did not leave a Will or any living descendants. Therefore, her husband, Palladino, was the sole beneficiary of her intestate1 estate, which Palladino would receive upon his release from prison.
Edwards’s sister, Donna Larsen (“Larsen”), argued that Palladino forfeited his right to inherit Edwards’ assets through the estate of Deanna as a matter of public policy since he caused the death of the person whose assets would benefit him through Deanna’s estate.2 On March 28, 2012, more than two years after Deanna’s death, the Surrogate’s Court of Suffolk County, New York, ruled that Palladino forfeited any claim to assets inherited through his spouse Deanna’s estate that are attributable to Edwards’ estate and Deanna’s estate would essentially be administered as if Palladino had predeceased Deanna.3
Of course, the dispute and litigation could have been avoided if Edwards had established a Revocable Living Trust for Deanna’s benefit rather than leaving her assets to Deanna outright by way of her Will.
As was briefly discussed in the May 2011 Newsletter (“Protecting Your Child’s Inheritance”), a Revocable Living Trust allows great flexibility in not only naming beneficiaries for your estate, but also in providing for unpredictable contingencies that may arise down the road. A few of these provisions are discussed below. Additional restrictions and instructions for the trustee can be drafted depending on the specific circumstances that may be unique to your beneficiaries.
Keeping Assets in the Family
Generally, individuals intend for their hard-earned assets to remain within the family—typically passing first to the Grantor’s4 spouse, then to the children and then finally to the grandchildren. Of course, if a beneficiary is allowed to withdraw trust assets, he or she may use them as they wish.5 However, any assets remaining in the trust at the beneficiary’s death will pass as provided in the trust document, remaining in the family unless the Grantor wishes otherwise.
In the Edwards case, if Edwards had established a Revocable Living Trust that held assets for Deanna’s benefit, those assets would have remained in Edwards’ family after Deanna’s death. Since Deanna was Edwards’ last living descendant, the trust assets would have typically passed to Edwards’ living parents and siblings, namely Larsen.
Divorce, Creditors and Drug Abuse
A properly drafted trust document permits the trustee to delay any withdrawal rights granted to a beneficiary in case the beneficiary is experiencing creditor issues or involved in a divorce proceeding at the time that such withdrawal rights go into effect. Additionally, if the beneficiary has experienced drug or alcohol addiction issues in the past, the Grantor may add additional restrictions on any withdrawals or distributions by the trustee while the beneficiary is undergoing treatment or is suspected of continued abuse.
Again, in the Edwards case, if Edwards had established a Revocable Living Trust and empowered the trustee to manage the trust assets for Deanna’s benefit, the trustee could have delayed any withdrawals by Deanna until she had stopped abusing drugs. As stated above, at Deanna’s death, any remaining trust assets would have passed to Edwards’ family rather than passing to Palladino.
When drafted correctly, a Revocable Living Trust allows the Grantor to exercise significant control over his or her assets and their use by beneficiaries beyond his or her own life. However, it is essential that the client communicate such concerns to an experienced estate planning attorney in order to protect the assets from falling into the wrong hands.
1. An individual who dies without a Will is referred to as dying intestate. Each state provides its own intestate succession law, which determines how the assets of a decedent who dies intestate will be distributed.
2. The “slayer rule” provides that “[n]o one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime.” Riggs v Palmer, 115 NY 506, 511, 1889.
3. Matter of Edwards, 2012 NY Slip Op 22102, March 28, 2012.
4. The Grantor, also called the Settlor or Trustor, this is the person who creates and funds the trust.
5. Withdrawal rights may be based on age, time after the Grantor’s death, achievements or eliminated altogether, depending on the wishes of the Grantor.